Suspicion Cannot Mint Commission: 0.25% Ad Hoc Addition on Alleged Bogus Purchases Deleted

ACIT Vs Abans Jewels Limited (ITAT Mumbai Bench)

Suspicion Cannot Mint Commission: 0.25% Ad Hoc Addition on Alleged Bogus Purchases Deleted

Summary: A survey u/s 133A was conducted in the Abans Group on 3 December 2019. Based upon information subsequently received from the Investigation Wing regarding certain entities from whom purchases had been made, the assessment of Abans Jewels Ltd. was reopened u/s 147. The assessee was engaged in manufacturing refined gold bars & trading in gold coins, gold chains, silver and other commodities.

During the reassessment proceedings, the AO examined purchases aggregating to ₹481.05 crore made from four entities, namely Asterpetal Trade & Services Pvt. Ltd., Mavaiya Enterprises Pvt. Ltd., Trishna Trading Services Pvt. Ltd. & Yogdarshan Commercial Trading Pvt. Ltd. According to the AO, these entities were not genuine and the purchases were not independently verifiable.

Significantly, however, the AO did not disallow the purchases themselves. He acknowledged that there could not be sales without corresponding purchases, but concluded that the transactions recorded in the books did not reflect the assessee’s true profits. Referring to the alleged prevailing market practice in accommodation-entry transactions, the AO estimated additional income by applying an ad hoc commission rate of 0.25% to the purchases. This resulted in an addition of ₹1,20,26,306.

The assessee maintained that the purchases were genuine & supported by extensive contemporaneous evidence. It furnished purchase invoices, warehouse receipts evidencing physical receipt of goods, delivery orders, bank statements showing payment through banking channels, GSTR-2A records & ledger accounts. In relation to Yogdarshan Commercial Trading Pvt. Ltd., the assessee specifically pointed out that payments were made through account-payee cheques and that there was no evidence of any money being returned to it in cash.

The assessee further contended that the AO had relied upon statements of third parties or directors without supplying copies of those statements. No opportunity to cross-examine the persons whose statements were sought to be used against the assessee was provided.

The CIT(A), following the Tribunal’s earlier decision in the assessee’s own cases for AYs 2018-19, 2020-21 & 2021-22, deleted the addition. The Revenue carried the matter in appeal before the ITAT.

The Tribunal noticed that the controversy was squarely covered by the Coordinate Bench’s decision in the assessee’s own case, which itself followed the decision rendered in the lead group case of Abans Commodities (I) Pvt. Ltd. In those cases, an identical methodology of estimating commission at 0.25% on alleged non-genuine purchases had been rejected.

The ITAT observed that the purchases of ₹481.05 crore were duly recorded in the books and had not themselves been disallowed. The AO had merely presumed that the assessee must have earned commission for obtaining accommodation entries. Once the documentary evidence supporting the purchases had not been disproved, there was no foundation for estimating an imaginary commission.

The earlier Coordinate Bench had also rejected allegations concerning the suppliers’ comparatively low capital, the use of common email facilities, filing of returns from a particular IP address & the financial capacity of their shareholders. Trading activity, the Tribunal observed, does not necessarily require substantial own capital. More importantly, the AO ought to have carried out an independent enquiry instead of blindly relying upon the Investigation Wing’s report.

The Tribunal also dealt with reliance upon the statement of a third party recorded during “Project Falcon”. That statement did not contain any specific reference to the assessee or its transactions. Moreover, a statement relied upon against the assessee was required to be confronted to it, coupled with an opportunity of rebuttal & cross-examination. In the absence of evidence that the assessee had paid any commission outside its books, the addition rested entirely upon conjecture & presumption.

Accordingly, the ITAT held that the ad hoc addition of commission at 0.25% could not be sustained. Finding no difference in the material facts, it upheld the order of the CIT(A) & dismissed the Revenue’s appeal. The assessee’s cross-objection supporting the CIT(A)’s order was allowed without separate adjudication.

In the connected case of Abhishek Pradeepkumar Bansal, the AO had treated purchases of ₹82.62 crore as non-genuine, while the CIT(A) restricted the addition to commission/service charges of ₹20,65,612, calculated at 0.25%. The Revenue appealed against the relief, while the assessee raised a preliminary objection regarding low tax effect.

The Tribunal held that the disputed addition of ₹20.65 lakh resulted in a tax effect considerably below the prevailing ₹60 lakh monetary limit for departmental appeals before the ITAT. The Revenue had neither pleaded nor established that the case fell within any exception specified in the CBDT Circulars. The appeal was consequently dismissed as non-maintainable due to low tax effect.

Even on merits, the Tribunal found the issue covered by its earlier decision in the assessee’s own case, where identical additions based on alleged non-genuine purchases had been deleted upon production of invoices, warehouse receipts, delivery orders, bank statements & GST returns.

The ruling reiterates that an Investigation Wing report may trigger enquiry but cannot replace enquiry. Where purchases are documented, corresponding sales are accepted & no evidence of cash-back or unaccounted commission is found, the AO cannot manufacture income by mechanically applying an assumed market commission rate. Suspicion, however strong, is not a taxable receipt.

Cases Discussed

• Abans Commodities (I) Pvt. Ltd. — ITA Nos. 3315/Mum/2024 and others.
• Abans Jewels Ltd. — ITA Nos. 3516, 3517 and 3518/Mum/2024, dated 30.09.2024.
• Abhishek Pradeepkumar Bansal — ITA No. 3523/Mum/2024 for AY 2018-19.

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI BENCH

These two appeals filed by the Revenue and cross objections filed by the assessee are against the orders of ld. CIT(A) 54, Mumbai passed against the assessment orders by ACIT/DCIT (CC)-4(3), Mumbai. Consolidated details of these appeals and cross objections are tabulated below:

2. We first take up ITA No. 700/Mum/2026 filed by the Revenue. Brief facts as culled out from the records are that assessee is engaged, inter alia, in the business of manufacturing refined gold bars and trading in gold coins, gold chains, silver and other commodities. Assessee filed its return of income reporting total income at Rs.3,10,26,630/-. A survey under section 133A was conducted in the Abans Group on 03.12.2019. Subsequently, information was received from the Investigation Wing regarding certain entities from whom assessee had made purchases. Assessment was reopened under section 147 by issuing notice under section 148A(b) on 24.02.2023. Assessee furnished its reply and thereafter, order under section 148A(d) was passed on 24.03.2023. Notice under section 148 was issued on 25.03.2023. During reassessment proceedings, ld. Assessing Officer examined purchases aggregating to Rs.481,05,22,602/- from the following four entities:

2.1. Ld. Assessing Officer even though treated the above parties as non-genuine, however, did not disallow the entire purchases. He proceeded to estimate commission income at 0.25% of the aggregate purchases, resulting in an addition of Rs.1,20,26,306/-. The assessment order records that the basis for such addition was the alleged prevailing market practice in accommodation entry transactions. Observation of ld. AO is important to be taken note of whereby it is stated that “it can be seen that there cannot be sales without purchase but at the same time as per the discussion made above, it is also proved purchases made from these non-genuine entities are not verifiable and hence it can be fairly concluded that the concerned purchase transactions recorded in the books of accounts don not reflect the true picture of the profits of the assessee……………….the additional net profit of the assessee from the above bogus transactions of business is estimated at 0.25% of the total purchases from non-genuine entities….” [emphasis supplied by us by underline]. Ld. CIT(A), after considering the submissions and material placed on record as well as relying on decision of the Coordinate Bench in assessee’s own case, deleted the addition.

2.2. Assessee had furnished documentary evidence in support of the purchases and had specifically disputed the allegations made on the basis of the investigation report. Assessee pointed out that the purchases were supported by purchase registers, ledger accounts, banking transactions and other documentary evidence. In relation to Yogdarshan Commercial Trading Pvt. Ltd., assessee specifically submitted that payments were made through account-payee cheques, were reflected in the bank statements and that there was no evidence of any cash being received back by assessee. Assessee also contended that statements of third parties/directors relied upon by ld. Assessing Officer had not been supplied and no opportunity of cross-examination had been granted. List of documents furnished by the assessee is as under:

i. Purchase Invoices

ii. Warehouse receipt for goods deposited in warehouse

iii. Delivery order received from supplier

iv. Bank statement evidencing payment made by the Company for the said purchases

v. GSTR 2A for the month of April, 2018 & May, 2018

vi. Ledger in the books of the Assessee

4. At this stage, it is important to note that during the course of the business

3. Ld. CIT(A) following the decision of the Tribunal in assessee’s own case for AYs 2018-19, 2020-21 and 2021-22 in ITA Nos. 3516, 3517 and 3518/Mum/2024, dated 30.09.2024 and other group entities with lead case of Abans Commodities (I) Pvt. Ltd., deleted the addition. Aggrieved, Revenue is in appeal before the Tribunal.

3. At the outset, we note that the issue involved in the present appeal is squarely covered by the decision of the Co-ordinate Bench in assessee’s own case which in turn is based on the findings arrived at in ITA Nos.3315/Mum/2024 and others in the case of lead entity of the Abans group viz. M/s. Abans Commodities (I) Pvt. Ltd. The said decision considered the very same nature of allegations concerning purchases from alleged non-genuine entities and, more importantly, the very same methodology of estimating commission at 0.25% of the purchases. Relevant portion of the said order is reproduced below for ready reference:

“24. We have heard the rival submissions and also perused the materials placed on record. It is seen that the ld. AO had treated the purchases from 6 entities as non-genuine and has applied profit rate of commission on such purchases @0.25%. He has accepted that these purchases are duly recorded in the books of accounts, and has not disturbed the purchases. However, according to him as per market practice there is commission rate of obtaining such entry at @0.25% which needs to be added. First of all in so far as the transactions of purchases from these parties are concerned, the same had not been doubted for the reason that ultimately the ld. AO’s allegation is that assessee might have earned commission on such purchases as these are non genuine parties with no credentials and on inquiry by the investigation wing various facts have emerged about their credibility. Now before the AO assessee has submitted the following documents:

(i) Purchase invoices;

(ii) Warehouse receipts showing physical receipt of the goods in the warehouse;

(iii) Delivery Orders;

(iv) Bank statements demonstrating payment towards the purchases;

(v) GST returns showing receipt of the goods and availment of input tax credit on such purchases.

If these documents have not been doubted then where is the question of making adhoc addition of commission on such purchases.

If these documents have not been doubted then where is the question of making adhoc addition of commission on such purchases.

25. Coming to the various allegations made by the AO and the rebuttal given by the assessee before the AO as well as before the CIT(A), it is seen that one of the allegations of the AO was that the source of funds in capital of these entities are less compared to the turn over. What was required to be seen is whether there was actual trading or not as trading does not require large own capital but what are the source of funds in their balance sheet. Another allegation regarding e-mail was only by the Abans group. There was nothing which has been brought on record by the ld. AO that e-mail was actually being handled by the Abans group nor he has mentioned who was operating the said e-mail. In so far as ITR filed from the premises of Abans group from a particular IP address, assessee has categorically denied that it is incorrect and no such ITR has been filed from the IP mentioned in the order but from some other IP address which was provided before the ld. CIT(A). This has not been rebutted by the department. In so far as the shareholders were not men of means, already it has been brought on record that they were filing their regular income tax returns and have shown investment of share capital from their own sources. In any case, this cannot be the ground for treating the transaction as non-genuine.

25.1……………….If the ld. AO has simply relied upon the comments of the investigation wing and he did not ask the assessee during the course of assessment proceedings to file their confirmations and he could have independently verified once the assessee had stated that all the Directors were available at the premises and ld. AO can ask for their attendance which ld. AO had failed to do so. In so far as books of accounts found in the audit report from the premises, the assessee’s contention was that neither, the Investigation Wing nor the ld. AO had provided the evidence in support of such allegation nor any details of content of data and period to which it pertain was provided or found. Thus, such ground cannot be adversely viewed. Once these facts were brought on record, ld. AO should have at least himself carried out any enquiry or verification rather than blindly apply and relying upon the investigation report. In any case, the case of the ld. AO is that assessee might have earned commission from such purchases of 0.25% which cannot be sustained as ld. AO has applied commission of 2% and reduced to 0.25% by CIT(A) are on mere conjecture. It is not a case where the entire purchases have been added, albeit ld. AO has presumed that assessee might have earned commission on such purchases made from non-genuine parties. Accordingly, such adhoc application of commission of 0.25% is deleted.

26. Similar issue of application of commission of 0.25% has been applied for the A.Y.2016-17, 2018-19 and 2020-21, therefore, in view of the finding given hereinabove, such addition on account of adhoc commission are deleted.”

3.1. Specific to assessee’s own case (supra), the Coordinate Bench gave its findings based on the conclusion drawn in the above paragraphs reproduced above. Paragraphs specific to the assessee are also reproduced for ready reference from the same order:

Abans Jewels Ltd.

45. In various years following additions/disallowances have been challenged by the assessee:-

6. Here again the addition has been made from purchases made five entities namely, Asterpetal Trade & Services Pvt. Ltd., Mavaiya Enterprises Pvt. Ltd., Manmish Traders Pvt. Ltd., Yogdarshan Commercial Trading Pvt. Ltd. and Trishna Trading Services Pvt. Ltd., and assessee had submitted all those documents proving the evidence of the purchases which are as under:-

(i) Purchase invoices

(ii) Warehouse receipts showing physical receipt of the goods in the warehouse

(iii) Delivery Orders

(iv) Bank statements demonstrating payment towards the purchases

(v) GST returns showing receipt of the goods and availment of input tax credit on such purchases

47. Again, Id. AO has made some allegations with regard to all the entities which has been dealt earlier. Accordingly, in view of our finding given in the other appeals, addition on account of alleged commission of 0.25% of such purchases are deleted.

3.2. The Co-ordinate Bench also considered the reliance placed on the statement of Shri Arun Shah of M/s. Aryav Securities and recorded as under:

“Now coming to the notional addition of commission u/s.69C for non-genuine losses, it is seen that same is based on statement of Shri Arun Shah of M/s. Aryav Securities allegedly recorded in the course of ‘Project Falcom’. However, nowhere in such statement there is any reference of the trade carried out by the assessee or involvement of the assessee. Further, if such statement was to be relied, then law provides that same should have been confronted with the assessee to rebut or cross examine. There is no evidence brought on record that assessee had actually paid such expenses outside the books and the entire addition is based on conjecture.”

3.3. Co-ordinate Bench thereafter applied the same principle in cases involving purchases from Yogdarshan Commercial Trading Pvt. Ltd. and Trishna Trading Services Pvt. Ltd., observing:

“Here also assessee had submitted all the documents and AO has made similar allegations based on investigation report to which assessee has given similar counter submissions which is not reproduced here. Thus, in view of the finding given in the above appeals, adhoc addition on account of commission @0.25% is deleted.”

4. We have carefully considered the aforesaid findings of the Co-ordinate Bench and find that the issue before us is materially identical. In the present case also, the Assessing Officer has not made an addition of the purchases themselves. The purchases aggregating to Rs.481,05,22,602/- stand recorded in the books of account. The impugned addition has been made solely by presuming that the assessee must have earned commission at 0.25% for obtaining alleged accommodation entries. The very basis of such estimation has already been considered and rejected by the Co-ordinate Bench in the aforesaid decision. Respectfully following the aforesaid decision and there being no divergence on the material facts as in the present case, grounds raised by the Revenue in its appeal are dismissed.

5. In the result, appeal of the Revenue is dismissed.

6. Assessee has filed its cross objection in CO 118/Mum/2026, against the appeal filed by the Revenue. From the perusal of the grounds in the cross objection, we note that they are nothing but supporting the order of ld. CIT(A). All the contentions raised through several grounds of cross objection have already been addressed and considered by us while adjudicating the appeal by the Revenue which has culminated into dismissal of its appeal. Thus, no separate adjudication is warranted on the grounds of cross objection raised by the assessee. Having dismissed the grounds of the appeal in terms of our above observations and findings, the cross objection filed by the assessee stands allowed.

7. Now we take up the appeal filed by the Revenue in ITA No.701/Mum/2026 and the cross objection filed by the assessee in CO 116/Mum2026. Revenue has preferred an appeal challenging the relief granted by the Ld. CIT(A) regarding disallowance/addition of ₹20,65,612/-, calculated @ 0.25% on total purchases of ₹82,62,44,929/-.

8. Brief facts as culled out from the records are that during the assessment proceedings, ld. Assessing Officer made additions/disallowances alleging that assessee was involved in non-genuine transactions and accommodation entries obtained through certain entities, including Aryav Securities Pvt. Ltd. Ld. Assessing Officer made additions under the premise that total purchases amounting to ₹82,62,44,929/- were non-genuine. Aggrieved, assessee went in appeal before the ld. CIT(A), who restricted the disallowance to 0.25% of the total alleged purchases of ₹82,62,44,929/-, resulting in a sustained disallowance of ₹20,65,612/- as commission/service charges. Revenue, being aggrieved by the relief granted by ld. CIT(A) in reducing the addition to ₹20,65,612/-, is in appeal before the Tribunal. In response, assessee filed Cross Objection, raising preliminary ground that the Revenue’s appeal is non-maintainable on account of low tax effect.

9. We have heard the parties and perused the material available on record. CBDT Circular No. 17/2019 and subsequent revisions/consolidated instructions issued mandates that no appeal shall be filed by the Revenue before the Income Tax Appellate Tribunal wherein the tax effect on the disputed additions does not exceed the monetary threshold of ₹60,000,000/- (Rupees Sixty Lakhs). On examination of the grounds raised by the Revenue, the total addition under challenge is ₹20,65,612/-.

The tax effect on the disputed amount of ₹20,65,612/- is well below the prescribed threshold limit for filing an appeal before the Tribunal. Furthermore, Revenue has not demonstrated or brought on record any evidence to establish that the case falls under any of the exceptions specified in the CBDT Circulars. Since the tax effect involved in the Revenue’s appeal is below the monetary limit prescribed by CBDT instructions, Revenue’s appeal itself is non-maintainable and liable to be dismissed on account of low tax effect. Consequently, the preliminary objection raised by the assessee in the Cross Objection regarding the low tax effect is allowed.

9.1. Even otherwise, present case of the assessee is covered by the above referred decision of the Coordinate Bench (supra) in his own case in ITA 3523/Mum/2024 for AY 2018-19. Relevant extracts are as under:

“Abhishek Pradeepkumar Bansal

41. In various years following additions / disallowances have been challenged by the assessee:-

42. Here again, the addition has been made on account of losses and paid of currency options and futures and addition on account of adhoc commission u/s.69C. Here in this case also similar facts are permeating wherein the ld. AO has only picked up the few transactions in which assessee has incurred losses and all other similar transactions where assessee had earned profit has not been disturbed. Accordingly, our finding given in the appeal for Abans Commodities Ltd., the addition on account of non-genuine losses and commission is deleted.

43. In A.Y.2018-19, ld. AO has made addition of non-genuine purchases of rs.20,27758/- by imputing adhoc commission of 0.25%. Here also, the facts are same as applicable in the other appeals wherein purchases from two entities have been doubted on which commission rate of 0.25% has been applied. Here in this case also assessee had filed documents to prove the genuineness of the purchases like purchase invoices, warehouse receipts, delivery orders, bank statements and GST returns. Ld. AO’s allegation is based on similar lines and the reasons given by the assessee are also the same, therefore, in view of the finding given in the earlier years, adhoc addition of Rs.0.25% of non-genuine purchases are deleted.

44. In the result, appeal of the assessee is allowed.”

10. In the result, Cross Objection filed by the assessee is allowed in terms of low tax effect and the Revenue’s appeal stands dismissed as non-maintainable. Appeal of the Revenue also gets dismissed in view of the findings arrived at by the Coordinate Bench in assessee’s own case as noted above.

11. In the result, both the appeals filed by the Revenue are dismissed and the cross objections filed by the assessee are allowed.

Order is pronounced in the open court on 17 August, 2026